RBI strengthening supervisory system to meet fintech challenges

• Follow

The Reserve Bank of India will soon launch a supervisory system that will enable off-site and on-site supervision of hi-tech functions such as digital banking and cyber security.

Deputy Governor M K Jain said at a summit that the central bank will soon launch a web-based, end-to-end system that will have functionalities for inspection, compliance and incident reporting for cyber security, etc., with a built-in remediation workflow, management information system (MIS) reports.

He also noted that banks, in order to stay ahead of the digital curve, need to be agile and creative, while simultaneously meeting the compliance requirements.

According to a report in Business Standard, strengthening supervisory capacity is critical for the RBI as it takes on more companies that are heavily reliant on technology. The report cited the cases of fintech firms in banking, the regulation of small finance and payments banks.

Ultimately, it is the governance standards, business model, risk culture, and assurance functions that will decide how well entity fares, in the long run, the Business Standard quoted Jain as saying.

According to Jain, the RBI is increasingly using data and analytical tools for offsite supervision. The central bank is also strengthening its capabilities through the revamped data warehouse, centralised information management system, which will “encompass tools and applications for AI-ML (artificial intelligence and machine learning), data visualisation and big data analytics.”

The RBI supervisory communication is also sharper and more focussed. “Additionally, direct engagements with the senior management of entities are much more frequent and intense,” Jain is quoted as saying.

PCA Framework

Meanwhile, the RBI has issued a revised Prompt Corrective Action (PCA) framework for banks to enable supervisory intervention at “appropriate time”

Capital, asset quality and leverage will be the key areas for monitoring in the revised framework, the RBI said.

The objective of the PCA Framework is to enable supervisory intervention at an appropriate time and require the supervised entity to initiate and implement remedial measures in a timely manner, so as to restore its financial health, the RBI said.

The new framework is also aimed at enforcing market discipline as well.

The framework will apply to all banks operating in India, including foreign banks operating through branches or subsidiaries based on breach of risk thresholds of identified indicators.

“A bank will be placed under PCA based on the Audited Annual Financial Results and the ongoing Supervisory Assessment made by RBI.